COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 99/LM/Dec00
In the large merger between:
The Chase Manhattan Corporation
and
JP Morgan and Company Incorporated
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Reasons for the Approval
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APPROVAL
1. On 13 December 2000 the Competition Tribunal issued a merger clearance
certificate approving the merger between The Chase Manhattan Corporation and
J.P. Morgan and Company Incorporated without conditions in terms of section
14(3)(a). The reasons for the approval of the merger appear below.
The merger transaction
2. The Chase Manhattan Corporation (“Chase Manhattan”) is acquiring JP Morgan
and Company Incorporated (“JP Morgan”). The merger will be effected by the
conversion of JP Morgan common and preference stocks into Chase Manhattan
common and preference stocks. The merged firm will be named J.P. Morgan
Chase & Company.
3. Both firms are registered in the United States and based in New York City and
have subsidiaries worldwide. In South Africa the merger will entail the
combination of the merging firms’ various subsidiaries. This report will deal only
with those subsidiaries of the merging firms who participate in the same markets.
4. Both parties are involved in the financial services industry; in their opinion their
services complement rather than compete with each other. They claim that the
merger will result in huge cost savings for them worldwide. In the assessment of
the parties a larger bank balance and pool of expertise resulting from the merger
will enable them to offer new services to their clients in South Africa.
EVALUATING THE MERGER
e. As mentioned above the merging parties conduct their business in
the financial services industry. By virtue of the interpretation
given by the Supreme Court of Appeals to section 3(1)(d) of the
Act1 we have confined our assessment of the effect of this merger
on competition to the nonbanking activities of the merging parties
in South Africa.
6. Chase Manhattan conducts a variety of nonbanking activities in the corporate
finance services market in South Africa through one of its wholly owned
subsidiaries, Robert Fleming Holdings SA Ltd (“Robert Fleming”). The corporate
finance services provided by Robert Fleming include equities research and trading
services, advice on mergers and acquisitions and general corporate advice. The
Commission estimates that Robert Fleming’s market share in this industry is less
than ten (10) percent.
7. According to the Commission J.P. Morgan is a new entrant in the corporate
finance services market. It conducts most of its activities in the corporate finance
services market through JP Morgan Securities South Africa (“JPMSSA”), a
wholly owned subsidiary. Some of its nonbanking activities are housed within its
banking subsidiary in South Africa, Morgan Guaranty Trust of New York. The
parties estimate JP Morgan’s market share at less than one (1) percent.
8. The merging parties also participate in the market for bond trading. Chase
Manhattan conducts its business in the market for bond trading through its
subsidiary Robert Fleming. Robert Fleming, through a subsidiary, Fleming Martin
Securities Limited, buys and sells listed bonds on behalf of clients. The parties
estimate that Robert Fleming’s share of this market is approximately five (5)
percent. Robert Fleming does not structure or underwrite bond issues.
percent. Robert Fleming does not structure or underwrite bond issues.
9. JP Morgan, through JPMSSA, provides bond advisory services to clients.
Services provided to clients in this market by JPMSSA are limited to structuring
and underwriting bond issues. According to the merging parties JPMSSA does not
participate in the market for the buying and selling of bonds except for its own
1 Standard Bank Investment Corporation Ltd v Competition Commission and Others; Liberty Life
Association of Africa Ltd v Competition and Others 2000 (2) SA 797 (SCA) – the Court interpreted section
3(1)(d) of the Act to provide that all industries that are subject to public regulation fall outside the ambit of
the Act. It held that the banking industry was regulated the Banks Act 94 of 1990 and therefore the
proposed merger between Stanbic and Nedcor did not have to be notified with the Competition Authorities
in terms of the Competition Act.
account or pursuant to its marketmaking obligations as arrangers of bond issues.
The relevant market
10. There are two product markets that are relevant for purposes of this transaction.
First, the market for the provision of corporate finance services and second, the
market for trading in bonds. The bond trading market can be divided into a
primary market, which involves the structuring and underwriting of bonds on
behalf of clients, and a secondary market, in which bonds are bought and sold.
11. The relevant geographic market is national. Although the subsidiaries of the
merging parties relevant to this transaction are based in Johannesburg, clients can
source their services nationwide.
Impact on competition
12. The Tribunal agrees with the Commission that this merger will not result in the
lowering or prevention of competition in either of the relevant markets identified
above.
13. The information provided to us by the Commission and the parties suggests that
JP Morgan is a relatively new and small player with less than one percent of the
market share in the corporate finance services market. Even though the merging
parties presently compete with each other in this market, the merger will not
materially affect the structure of the competition given the small share of the
market currently held by JP Morgan. The parties have argued that this market is
any event very competitive.
14. In terms of the Commission report there is very little overlap between the
businesses of the merging parties in the bond trading market. Chase Manhattan
participates in the primary trade in bonds; they structure and underwrite bond
issues on behalf of clients. As appears above Chase Manhattan’s activities in the
secondary bond trading market is for its own account or pursuant to its market
secondary bond trading market is for its own account or pursuant to its market
making obligations as arrangers of bond issues. JP Morgan, on the other hand,
participates exclusively in the secondary bond trading market for the benefits of
its clients.
15. The Commission submitted that the two markets referred to above are very
competitive markets and the merger would not result in the parties gaining market
power. In the opinion of the Commission the parties clients in both markets also
posses some degree of countervailing power.
16. The Tribunal agrees with the Commission’s assessment of the effect of the merger
on competition and is satisfied that the merger will not result in lessening or
prevention of competition in any market.
_____________ 21 December 2000
N.M. Manoim Date
Concurring: D.H. Lewis; D. Terblanche